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Paul Ryan Proposes Privatizing Social Security

According to Frum Forum, Republican Paul Ryan (WI) has proposed a plan to reform Medicare and Medicaid but without major overhauling of Social Security. Ryan’s “Roadmap” for changing Social Security has a few good, commonsense ideas that do not require major reform. He does suggest a privatization scheme that may not be as ideal.

Ryan proposes raising the retirement age for those Americans now under 50, saying that majority is now living longer. He also proposes reducing benefits for high income earners in the 31st percentile. Some argue that the percentile includes people who are not well off.

The Republican Representative also suggests offering guaranteed private accounts to supplement the current systems. A worker would contribute 5.1 percent of their 12.4 Social Security tax in a private account, modeled after the Federal Employees Thrift Savings plan. Ryan suggests that the government would guarantee a rate of inflation return on contributions to the accounts, which may create a giant new liability for federal government. Each time a bear market hits, the value of some of those accounts would decline beneath the value of initial contribution. Ryan proposes that taxpayers become liable for the difference between the inflation adjusted value and the current value of accounts. Under Ryan’s plan, people would have strong incentives to slightly increase their stock investments and if those investments pay off, individuals would retire much wealthier. However, if they do not, the government would pick up the difference, according to this proposal.

Even though Social Security benefits are not technically guaranteed as a matter of law, the Social Security program has bonds that will pay every penny promised until around 2041.